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Managing a joint account with your child or a relative

The decision to open a joint account with a spouse, child, parent or even a roommate is more complex than it seems

SINGAPORE — Setting up a joint bank account together with your spouse, child, parent or even a roommate seems to be an easy and wise decision. Parents can help their children learn about money or manage money for their own elderly parents, spouses can plan their budget together, and roommates can share expenses.

Look a little further, though, and the decision to open a joint account is more complex than it seems.

REASONS TO OPEN A JOINT ACCOUNT

There are a number of perfectly good reasons to open a joint account.

Couples often set up a joint account to manage their money as soon as they get engaged or married so that they can pay bills and invest for the future. Research by University of Iowa Assistant Professor Keli Steuber even shows that joint investments by people who are engaged can enhance relationship quality.

Roommates or partners often follow a similar practice of setting up a joint account, though often just to pay the bills. Friends may set up a joint account to make an investment or start a business.

If your child is young and you want them to learn how to manage an account, banks usually require the child to open an account together with an adult. If your child is a bit older and heads overseas for school or travel, a joint account gives them an account to tap into with a debit card to pay for school supplies, tuition, meals or hotels.

Setting up a joint account with an elderly parent also allows adult children to pay the bills if the parent is hospitalised, has dementia or simply needs some help managing their money.

PITFALLS OF JOINT ACCOUNTS

These perfectly sensible reasons for having a joint account can lead to difficulties, though, if the account is not set up and managed well.

Read social media or open up a newspaper and you may well see sensational stories about family squabbles over one child using their parent’s millions for personal expenses or a husband getting money in a divorce that his ex-wife’s parents put into a joint account for her. Even if most of us don’t have millions, arguments within families can become heated over even hundreds of dollars if a relative is accused of using money unfairly.

Both accountholders do, however, legally have the right to use the money. If a parent puts tens or hundreds of thousands of dollars into an account to pay for university fees when their child studies overseas and the money goes for a Ferrari rather than school fees, or if a friend runs off with the money rather than co-investing, there is little the joint accountholder can do other than complain.

The situation can become more serious if one accountholder runs into trouble, such as bankruptcy or liability for a traffic accident. While the courts may ultimately decide what happens to the funds, both accountholders may lose their money. Your credit record could also be affected if your joint accountholder writes a cheque when there’s not enough money in the account or takes a loan using an overdraft on the account.

Do not plan to keep anything secret, either. When you pay with a debit card, for example, the joint accountholder can see exactly how much their birthday present actually cost or how much you spent with your friends at your favourite restaurant last Friday night.

MANAGING A JOINT ACCOUNT WELL

It might seem unlikely that any of these problems would happen. After all, most people trust their relatives and friends with more than just their money. Rather than being caught off guard, however, a few simple precautions can help preserve your money. The first step is to figure out the actual reason for opening a joint account, and open a single-name account if you can instead of a joint one. Independent financial advisor and author Gail Bebee also suggested on Morningstar that spouses or partners opening a joint account have a frank talk about money management, spending patterns and financial plans.

It can be helpful to put smaller amounts into the account initially and watch each other’s money habits. If one person is a saver and the other is a spender, you’ll have time to figure out how to live with the different approaches to money before putting in larger amounts and having the relationship run into trouble.

Also, consider setting up what national education programme MoneySENSE calls a “joint-all” account, whereby instruction for transactions must be given by all accountholders. Accountholders with “joint-alternate” accounts, on the other hand, can make transactions individually and the bank can hold you both liable if the other person writes a cheque or tries to use funds when there is not enough money in the account. Accountholders should think about specific requirements that may affect the account and set them up in advance, such as requiring that two children must both authorise withdrawals from their parent’s account, especially when the account is for infrequent payments for larger amounts.

While opening a joint account can definitely be beneficial, planning for problems and structuring the account well can avoid difficulties in the future.

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